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WASHINGTON, DC -- The Department of Justice today filed a civil antitrust action
against
the four leading options exchanges, charging that they illegally agreed that they would not list
equity
option classes listed already on one of the other exchanges. At the same time, the Department
filed a
consent decree that, if approved by the court, would resolve the lawsuit. Also today, the
Securities
and Exchange Commission issued an order requiring important reforms by the options
exchanges.
Collectively, the consent decree and the order will prohibit anticompetitive conduct and will
restructure
the options industry to ensure greater competition in the future.

The Department's Antitrust Division filed suit in U.S. District Court in Washington,
D.C.,
naming the American Stock Exchange, L.L.C., the Chicago Board Options Exchange,
Incorporated,
the Pacific Exchange, Inc. and the Philadelphia Stock Exchange, Inc. as defendants. Option
exchanges
provide a forum for their members to trade options. An option is the right either to buy or sell a
specific
amount or value of an underlying interest (equity securities, stock indices, government debt
securities or
foreign currencies) at a fixed "exercise" price by a specified expiration date. The four exchanges
named in the suit account for the vast majority
of standardized equity option trades in the United States.

According to the Department's complaint, starting sometime in the early 1990s, the
defendant
exchanges agreed not to list equity option classes that were listed already on another exchange.
The
SEC determined in the late 1980s that competition among exchanges for equity options would
benefit
investors, in part by narrowing spreads ­ the difference between the best quoted price to
buy and the
best quoted price to sell an option. The agency then revised rules that had previously limited the
listing
of certain option classes to a single exchange. The revised SEC rules prohibited the exchanges
from
maintaining any rule, stated policy, practice or interpretation that precluded the multiple listing
of
options.

Rather than conform to the directives of the SEC, the defendant exchanges reached an
understanding between and among one another to refrain from listing equity options classes that
were
already listed on another exchange. As a result, many frequently traded equity options were
traded
only on one exchange from the early 1990s until at least the summer of 1999, thereby depriving
investors of the benefits of competition.

The complaint also alleges that the exchanges enforced the agreement by threatening and
harassing exchanges and market makers who desired to multi-list option classes and by jointly
limiting
capacity of systems that disseminate options information for the purpose of deterring listing
competition.

"Today, more people than ever are investing in the options market," said Joel I. Klein,
Assistant
Attorney General in charge of the Antitrust Division. "Investors who choose to buy or sell
equity
options expect to receive -- and are entitled to receive -- the full benefits of
competition. The agreement reached by the defendant exchanges harmed consumers by
depriving some investors of better prices, lower transaction fees, and higher quality services, that
would
have occurred had no agreement existed."

Under the terms of the consent decree, the exchanges are prohibited from entering into,
continuing, or reinstating their listing agreement in any form; prohibited from threatening,
harassing, or
intimidating exchanges or exchange members that seek to multi-list an option class; and
prohibited from
maintaining rules or policies that prohibit multiple listing. The exchanges are also required to
provide
reports relating to listing decisions and allegations of harassment or intimidation to the
Department and
to put antitrust compliance procedures in place.

The Department worked closely with the SEC, which was conducting its own
investigation of
the options industry. The Department determined that certain reforms necessary to promote
competition in options trading could best be achieved by the SEC because of the important role
it plays
in regulating the options industry. Thus, under the terms of the SEC order issued today, the
exchanges
are required to propose rule changes that eliminate the opportunity for future anticompetitive
conduct.
Further, the exchanges are also required to increase surveillance expenditures. To comply with
the
consent decree and the SEC order, the options exchanges will have to make substantial changes
in their
operations.

"The Justice Department's consent decree and the SEC's order represent the culmination
of a
major cooperative effort of the two agencies that will change the way business is done in the
options
industry," said Mr. Klein. "The Justice Department and SEC worked shoulder to shoulder to
uncover
anticompetitive conduct. The agencies also cooperated to design remedial measures to prevent
the
options exchanges from operating in an anticompetitive manner in the
future, and I have been assured by the SEC that it will act promptly to implement the reforms
that both agencies have determined are necessary. I am delighted that the Justice Department
and SEC were able to work together to accomplish such an important result for the American
consumer, and I want to take this opportunity to express the Department's appreciation to the
SEC
staff."

As required by the Tunney Act, the proposed consent decree, along with the
Department's
Competitive Impact Statement, will be published in the Federal Register. Any person may
submit
written comments concerning the proposed decree during a 60-day comment period to: Nancy
Goodman, Chief, Computers and Finance Section, Antitrust Division, U.S. Department of
Justice, 600
E Street, N.W., Suite 9500, Washington, D.C. 20530. At the conclusion of the 60-day comment
period, the Court may enter the final judgement upon a finding that it serves the public interest.